- Early progress with new channel partners Australian Made and Namaste (CVE:N)

Anti-Counterfeit and Customer Engagement solutions provider YPB Group Ltd (ASX:YPB) presents a summary of activities for the quarter ended 31 June 2018.

The quarter saw an improvement in cash consumption with the net operating cash burn falling 33% from $1.8m in Q1 to $1.2m in Q2. Overall, the result was in line with expectations. Cash receipts were a little softer than expected due to a timing issue but cost control was strong. The non-cogs operating cost base remains close to the targeted $6.5m per annum.

The primary factor in the improved result was a 23% or $0.5m fall in gross operating cash costs driven by lower headcount in Q2 after settling restructuring payments in Q1, and one-off legal and accounting fees that occurred in Q1.

Lease costs rose due to rental deposits for a new Motif Micro laboratory in the US which will not recur in subsequent quarters. R&D cash spend fell due to completion of software build but is likely to rise with development of Motif Micro and blockchain. Reallocation of cash costs within the R&D budget will partially restrain the increase.

Cash receipts fell 15% in Q2 due to timing of invoicing that is now collectable in Q3. Accrued revenue in Q2 was essentially flat over Q1. That is, sales were stable in Q2 and the receipts fall reflects timing. The weaker cash receipts were more than offset by a $251,000 successful R&D tax credit claim from FY2016.

Developments in Q2 2018

Progress in concluding new client contracts was again frustrating in Q2 and lagged expectations due primarily to clients' internal processes. Nevertheless, sales and contract finalisation activity is at an all-time high and there is a high likelihood of on-boarding banner clients in Q3 and Q4.

Three highly significant corporate developments occurred in Q1:

1. Technology:

a. Motif Micro smartphone readability. Rapid progress was made in Q2 on smartphone readability of high protection security marks using Motif Micro IP. This is a MAJOR leap in both technological capability and commercial appeal. Client interest in this product is very high as it will allow high security anti-counterfeit technology to be deployed in the mass market and facilitate authentication as the trigger of direct customer-brand engagement. The ability to demonstrate smartphone readability of a high security authentication mark to clients and potential clients, due in August 2018, is expected to boost sales closure rates.

b. ProtectCode. A new and unique, market leading, high security QR code was achieved in Q2 which is generation 1 of the Motif Micro ProtectCode development path. The serial unique identities generated by YPB Connect in the form of QR codes will be protected with a unique tracer material to preventing copying and faking. First shipments of ProtectCode are expected in Q3 2018.

2. Token Issue to target US$30m in shareholder friendly funding. Preparations for the YPB Token Issue (TI) were completed in Q2 with all relevant resources and materials completed. In late July 2018, a four month review by ASX and ASIC of the TI concluded and the board determined to proceed with the TI. If successful, the TI will create substantial value and financial strength by fully funding the company with zero dilution of shareholder interests. The Token Issue is expected to commence in August 2018. The TI will also facilitate the inclusion of blockchain in Connect and boost the commercial appeal of YPB's 360degree solution.

3. Clients and partners. As noted above, new client signings lagged expectations in Q2 but very significant progress was made in business development. As noted above, signings of significant clients are expected in Q3 and Q4. The most important business development in Q2 was partnering with the "Amazon of Cannabis" Namaste Technologies, a dynamic and rapidly growing producer-to-consumer hub for the global medicinal cannabis industry. The first client under this partnership, Chinese vaporizer manufacturer Kington, was signed within a month of the partnership's commencement. A range of novel marketing avenues will be pursued with Namaste the first being last week's launch of the cannabis confirmed initiative to drive product authenticity in the sector. http://www.abnnewswire.net/lnk/Q8EIUQDD

YPB Executive Chairman John Houston said: "The improved Q2 was satisfactory but we remain intent of rapidly achieving profitability. What isn't apparent yet in cashflows or the share price is the enormous impact I expect the technical advances made in Q2 to have on the company's future value. A smartphone readable authentication mark is the holy grail of anti-counterfeit and we will be taking generation 1 to a market hungry for this solution in H2 2018. In addition, I am very optimistic of a successful Token Issue which will directly and immediately create shareholder value. Finally, our work on sales culture, strategies, personnel and partners is having a real impact with the results to flow in H2 2018."

About YPB Group Ltd

YPB Group Ltd (ASX:YPB) lives by three words - certainty of authenticity. We deliver on this through our experience in creating revolutionary, patented brand protection and customer engagement solutions. Solutions that detect and prove certainty of authenticity and connect brands directly to their customers, empowering them to engage one-on-one.

In an evolving marketplace and with the rapid growth of cross border commerce, our expertise presently focuses on the rapidly growing markets of Australia, South East Asia and China.